I took a long trade in the Nasdaq futures last night about 10 minutes after the 6 pm Sunday open. The index had gapped down about 25 points on some “bad news” from Europe, but I’m a technical trader so my methodology doesn’t include an input for news, good or bad.
News is a trap for many traders. We get much of our market information from media that has a need for sensationalism. That’s how they hold viewer attention. After a couple of decades as a trader, however, I now believe that it is impossible to accurately predict the market’s reaction to news. So why even try?
In fact, in the indices, paradoxical reactions are commonplace. News gets “priced in” before it happens, but there’s no objective “priced-in” indicator, so any attempt to quantify it would be guessing. And for me, a gut feeling isn’t a bona fide edge.
On Sunday night, even though the market’s plunge was sudden and rather severe, price had started to move up. Why was it going up? Perhaps a combination of value-seeking buyers and shorts covering. That’s a nice theory, but there’s really no way to know ‘why’ the market does anything. That’s why there is no input for ‘why’ in my trading methodology.
Instead I use math to signal my entry opportunities, which is about as objective as one can get.
Tonight, however, I had what I considered a sloppy signal. I like getting in on pullbacks and this signal was clearly late. The NQ had already rallied 3 points off the swing low. I could think of a number of reasons not to take it and they all flashed through my mind as I was considering the trade. Was I about to make a terrible mistake? Is this a trap? Shouldn’t I wait for a better signal?
By the time the idea flow subsided I had fully second-guessed my signal. Fed up with that way of trading, which is a tendency for those with my specific trader personality, I decided to ignore my mental chatter and just take the damn signal.
The trade worked out, but that’s not the point. There’s wisdom in simplicity; in dumbing-down your thought process so you can actually follow a method to the letter. If your mind is over-analyzing your trading opportunities, picking and choosing to death, ask yourself: What would Forrest do?
